Oracle shares experienced volatility following the release of its fiscal first-quarter earnings, which revealed a 30% increase in revenue fueled by robust demand for artificial intelligence cloud services. Although the stock initially rose after market open, it ultimately closed down nearly 2%, reflecting investor concerns about the company’s mounting debt levels.
The software giant reported revenue of $19.35 billion for the quarter, surpassing LSEG consensus estimates of $19.14 billion. Net income climbed significantly by 60% to $4.7 billion, up from $2.93 billion during the same period last year.
Cloud services emerged as a primary growth engine, with total cloud revenue jumping 62% year-over-year to $11.6 billion. This surge was largely attributed to a 121% spike in cloud infrastructure revenue, while cloud application revenue grew by 10%.
To support expanding AI workloads, Oracle delivered an additional 850 megawatts of data center capacity and provided more than 300,000 graphics processing units to AI Cloud customers during the quarter. The company also secured over $30 billion in new AI cloud contracts.
However, the aggressive capital expenditure has come at a cost. Oracle now carries $125 billion in debt as it finances extensive data center buildouts for major clients including Nvidia, Meta, OpenAI, Advanced Micro Devices, and SpaceX’s AI division. Consequently, the company posted a negative free cash flow of $5.4 billion for the quarter, a stark contrast to the -$362 million recorded a year prior.
Looking ahead, Oracle guided for second-quarter revenue growth between 30% and 34%, with cloud revenue expected to rise by 64% to 70%. The company anticipates total fiscal year 2027 revenue to reach at least $90 billion.
Despite the heavy debt load, which has weighed on the stock’s performance this year, analysts remain optimistic. Citi analysts reiterated a buy rating, stating that the results “checked nearly every box” and reinforced the bull case for the company. “Oracle delivered a solid fiscal first quarter that cleared the runway for its upcoming investor day,” the analysts wrote in a Friday note.
Who else thinks buying on dips here is just catching a falling knife? That negative free cash flow needs to turn positive soon or else.
62% cloud growth is insane though. Oracle really did outpace everyone else in the enterprise AI space this quarter.
Stock dropped despite beating estimates. Investors are finally waking up to the reality that growth at this cost isn’t sustainable long-term.
Wait, they gave away 300,000 GPUs? That sounds like a massive investment, but I need to see consistent free cash flow before I believe the hype.
$125 billion in debt is terrifying. I hope this AI boom pays off before the interest payments sink the ship entirely.